IPO (Initial Public Offering) - When a company makes either a fresh issue

of securities or offers the existing securities or both for the first time to the
public, it is called Initial Public Offer (IPO). They are often issued by smaller,
younger companies seeking capital to expand, but can also be done by large
privately-owned companies seeing to become publicly traded.
This kind of an issue is issued due to various reasons like: -
1. For repayment of debt
2. To raise funds for expansion, diversification etc.
3. It enables listing of securities on stock exchange to facilitate trading in such
securities.
4. It helps company establish its value and build prestige and public images.

The IPO can be made through –

1. Fixed Price Method – under this the price at which securities are offered
and allotted is made known in advance to the investors and the demand for
securities is known only after the closure of the issue.
2. Book Building Issue – It is a price discovery method under which, a price
band is determined by the issuer, within which investors are allowed to bid
for the securities offered by them and the final price of the security is
determined only after the closure of the bidding but the demand for such
securities offered at various price levels is made known on real time basis as
the book is built during the process.